Trader’s Narrative

Bears are cute and cuddly, until they tear off your head and feast on your carcass. The bear rampaging through Wall Street has taken the poor S&P 500 index down 52% at its deepest level. In case anyone is still keeping track of these sort of things, that’s off the charts.

It is a deeper loss than the bear market we last saw in 2002 in the aftermath of the technology bubble, and it is deeper than the “oil shock” induced bear market of the 1970’s, mercifully ending in less than 2 years from the top in October 1974.

The only bear market that lasted longer and created more devastation was the 1929 aftermath which sliced off 90% off the market’s valuation from its top by the time it was over.

It is the weekend and time to lick your wounds and get ready for duck the swats of this ferocious bear. Don’t forget to check out news.tradersnarrative.com for continous links to articles, breaking stores and analysis. Here are a few examples:

Buffett seems to have been taken off guard like many investors. Way back in 2007, well before the market topped, Berkshire Hathaway (BRK.A) wrote European style put options on the S&P 500 index and 3 other international indices for the next 15+ years. Does that mean that now, more than ever, the market is “cheap”? or did he make a massive blunder?

Fairfax’s Prem Watsa, who many liken to Buffett, recently removed protective hedges and for all intents and purposes went long the stock market after many years of forecasting doom and gloom.

Obama is reported to have tapped Hillary Clinton to be Secretary of State. Hmm…. that strikes a bell. Who was it that mentioned Hillary as the next Secretary of State two months ago?

If the embedded videos don’t work here are the links to them: Hillary Clinton and Recession Watch.

When you have a comedy show like The Colbert Report mention an esoteric indicator like the CBOE volatility index… you know that things have run their course:

The picture is from Monday’s show in which Stephen Colbert riffed off the “fear index” and mentioned that it “is at an all time high” He then said, “Even worse? The fear index is scared of heights!”.

As I mentioned before, I was in Spain a few years ago and in that trip was introduced through friends to a mutual fund manager. To protect the guilty no names will be mentioned. Over a few drinks talk inevitably turned to the markets and I commented on the VIX index. From the puzzled looks it seemed she didn’t know what it was so asked and once she confirmed that she had never heard of it, I explained it to her and told her where to get more info.

My world was a bit shaken though - how can you manage money without even knowing what the heck the VIX is? Sheesh.

The VIX hasn’t become a household term but, we’ve already seen similar financial spreads and indicators, normally reserved for economists, traders and quant-jocks being bandied about liberally in the news: LIBOR, TED spread, CDS, CDO, etc.

Today continued the divergence between the VIX & the S&P 500 Index (SPX). Volatility barely budging even though the market fell 3%.

You can watch the segment here:

If you are outside the US, tough luck! With the exception of Canadians who can go here.

Speaking of Greenspan and his attempt to white wash his legacy, I found this hilariously biting cartoon (see below). It is of a penguin at a book signing, admiring the “comedic genius” of the Maestro:

Penguin: “I have to hand it to you Mr. Greenspan — you are a comedy mastermind!

Penguin: “Remember when you were helping to inflate the housing bubble with historically low interest rates — and urging people to take out adjustable rate loans? What a classic! Pure comedy gold!

Penguin: “And what sense of timing you have! I love how the pause between the setup and the punchline can last — well — years! Like when you urged Congress to social security by raising the payroll tax — which disproportionately impacts low and mid-level earners!”

Penguin: “Two decades after American workers began paying the higher rates you asked for — you used the surplus they created as an argument in favor of Bush’s tax cuts for the wealthy!”

Penguin: “And then after those tax cuts lead to soaring deficits, your response — and this is priceless — was to propose cutting social security benefits! I don’t think Stephen Colbert could have done better!”

Penguin: “And to top it off now by claiming that you were actually opposed to the tax cuts all along — what can I even say? I stand in awe of your comedic genius, Sir.”

Greenspan: “Would somebody please taser the penguin?”

Click to Enlarge Cartoon

Credit:
“This Modern World” by Tom Tomorrow
at Salon.com